Category: Products

The Fat Torso

~ avichal ~ Leave a comment

The Internet’s potential to enable new businesses by building for customers in the Long Tail is well-documented. However, for many Internet businesses, the Fat Torso is now more important.

As the Internet has scaled, we have seen the emergence of markets with Fat Torso and successful businesses that first target the Fat Torso of customers.

The Shape of Markets

Markets can have a big head, fat torso, or long tail. Offline businesses tend to have a fat head because there are real economies of scale. For example, the top five automotive manufacturers own about 50% of the global market and the top 15 own about 90% of the market. Internet businesses such as YouTube have both a fat head and a long tail uniquely enabled by the Internet.

As the Internet has matured, many markets have grown to also have “fat torsos.” These Fat Torso markets are often fantastic markets for startups to enter and the right entry point is through the Fat Torso.

What is the Torso?

Customers in the torso are between the head and the tail. They make decisions quickly and generate significant revenue or engagement per customer. Customers in the torso generate more value for your business (revenue or engagement) than tail customers, i.e. the area under the curve is larger. Unlike customers in the head who often make unreasonable demands because they are used to being catered to and having market dominance, torso companies will make feature requests that apply to many customers. Torso companies are hungry to compete with head companies and will try new solutions in order to gain an edge against their bigger competitors.

What is a Fat Torso?

Not all markets have “fat” torsos. If the torso is “fat,” there are many customers who meet the torso criteria (who spend lots of money and move quickly). Thus you can scale your business quickly: lots of customers * high revenue per customer (and they move quickly).

Go To Market: Torso First

The Fat Torso is the best place for startups to prove their business model. Often the go-to-market:

  1. Prove the model with the fat torso customers – torso customers move quickly, offer significant value to your business, are eager to scale their businesses, and do not have significant leverage over you to make unreasonable demands.
  2. Scale to support the head – now that you have some scale, you can negotiate with larger customers or partners. Your company has the runway to wait out the long time horizons that large customers require.
  3. Build self-service tools to serve the long tail – these customers offer significant revenue at scale but require a significant investment of self-service tools. They serve as a moat around your business if you can get them onboarded. Now that you have the customers they aspire to be (torso customers)

Examples

  • Online Ads — target sophisticated online advertisers such as game developers who scale ad spend quickly to $10 million+. Targeting smaller businesses in the tail requires hand-holding, self-service tools, and they will not scale ad spend over time. After you have the torso advertisers, convince large advertisers such as brand advertisers to use test budget and build out self-service tools for the tail.
  • SAAS — start by targeting companies large enough to give their employees autonomy to make purchasing decisions (say 100-1000 people). Avoid Fortune 1000 companies and avoid two-person startups. After you have many companies from 100-1000 people using your product, you can start moving up stream to enterprises and then build self-serve tools for startups.
  • E-Commerce Marketplace — find sellers who can use your platform as part of their existing full time business. At the same time, find buyers who will buy more frequently on your platform not just once per year. Etsy is a good example. It has many suppliers supplement their income substantially via Etsy and Etsy’s customer base appears to have a fat torso with 60% of customers buying only once per year. Over time you may be able to scale to head sellers like Nike or Dell. This is the path eBay took after scaling its core business by first working with sellers who made a living on the eBay platform.

The Torso First approach not the right fit for every market since not all markets have a Fat Torso. However, it is an increasingly common theme in businesses that scale to $100M+ in revenue, both because the markets that have Fat Torsos are great markets and because businesses that scale often use this strategy to scale quickly.

We discussed very similar ideas in some meetings at Facebook. I’m not sure who came up with these insights exactly, so thanks to everyone involved in helping form the ideas: Andrew “Boz” Bosworth, Alex Himel, Pratiti Raychoudhary, and Jon Lax.

Startups Win by Cheating

~ avichal ~ 3 Comments

Many engineers believe that if you build a great product, everything else will take care of itself. Unfortunately startups rarely work this way. Building a great product is a necessary, but not a sufficient condition for success.

Types of Unfair Advantages

Startups usually win because they exploit an unfair advantage — they cheat. A small advantage can give a startup enough momentum to succeed on the quality of its product.

You have to figure out where you have an unfair advantage. This can help filter or eliminate opportunities, and helps you focus on how to acquire the advantages your company will need to win. An incomplete list of advantages:

  • Information Advantage – If you worked on Facebook’s feed algorithms and leave to start a business built on Facebook distribution, you have an information advantage.
  • Access Advantage – If you were previously VP of Sales at a company and are going to sell a new product to your previous company’s customers, you have an access advantage.[1]
  • Technology Advantage – you have patented technology or defensible (non-trivial) technical advantages that is core to your business. This is very rare for startups. Engineers tend to over-estimate the defensibility and true value of their technology.
  • Data Advantage – you have access to data no one else has access to yet. For example, a company I consulted with had access to a non-public API from a major retailer that allowed them to advertise to users in a way no one else could.
  • Reach Advantage – if you’re already a celebrity, you can reach people for free. Kevin Rose used his reach on television to promote Digg in the early days. Jessica Alba is using her celebrity to promote her diaper company. They “cheated” to jump start their business.

Example

Zynga was kickstarted because Mark Pincus was an angel investor in Facebook (Access Advantage) had early notice that the FB API was going to launch (Information Advantage). Zynga became a launch partner and had a head start on almost everyone in the market.

Every entrepreneur and company has ways to “cheat.” Unfortunately, too few entrepreneurs spend time thinking about what their unique advantages are and what unique advantages a company in their space would need to succeed. If a company can get those two to align, they have a much easier time getting off the ground. And getting off the ground is the hardest part of doing a startup.

Footnotes

1 – I’m not advocating violating any employment contracts/laws or being shady. For example, you could sell a non-competitive product to your former clients that became your friends.

Amazon owning app distribution is irrelevant

~ avichal ~ 10 Comments

Some people are writing about how Amazon is going to steal Android app market distribution away from Google. Not only is this statement incorrect, but it is a clear misunderstanding of how Google and Amazon think about Android. I’ve worked at both Google and Amazon, and have written apps for both iOS and Android, so I’m going to chime in.

Amazon won’t own the app market

Amazon is going to be one tablet manufacturer and maybe one phone manufacturer. Even if Amazon owns 20% of all Android devices, they will have the same share as Samsung and less share than HTC and Motorola have in phones (see below). Or, let’s be generous and assume that Amazon manages to sell the same number of total tablets as the iPad — 40 million by Apple’s count for both iPad + iPad2. That total number of Amazon tablets is as many Android phones as are currently being activated every quarter. Let’s get real: Amazon will not have the leverage to do any serious damage to Google’s hold on the pre-installed App Market bundled with Android (which powers both tablets and phones).

Android Manufacturer Market Share

Google does not care about app sales

Even if Amazon does own the app store, thinking about app sales is a failed attempt to apply Apple’s iOS model to a totally different ecosystem. Android does not work like iOS because Google has different priorities than Apple. Google is a search company. Owning the platform is Google’s way of making sure they own search — both on the web and for apps. Google makes over $30 billion in revenue from search. The revenue that flows through the app market to Apple is about $1 billion ($3B in sales, $1B flows to Apple). Google does not care about facilitating app sales because they can make 15-30x the money from search.

Furthermore, Google clearly believes that the web will win out in the long term and native apps are a stop-gap, so they are skating to where the puck will be — open and web based. Google saw this with AOL and hand curated directories like Yahoo in Internet 1.0 and is betting history will repeat itself. Even if apps stick around, Google wants to own search on top of the apps just like they do on the web and they’ll monetize the hell out of that. Google does not care about owning Android or the app market for app sales. They want to own search.

Amazon does not care about app sales

Kindle Fire is about selling more digital content and facilitating e-commerce. Apps happen to be one type of digital content, but they’re far from the focal point for Amazon. Amazon is the world’s biggest online retailer. They want you to buy stuff on Amazon.com. From free shipping, to Amazon Prime, to Kindle 1.0 it’s always been about getting you to spend more money on Amazon. Tablet users love to buy stuff online. The Kindle Fire is about facilitating old school e-commerce. Owning 20% of app sales is lame. Owning 20% of e-commerce on tablets is what Amazon is salivating over. Instant Video and having an App Market are nice secondary revenue streams, but a drop in the bucket to what Amazon does in it’s core commerce business. Amazon would make the Kindle Fire if they were guaranteed to make $0 on app sales because they will make billions on increased commerce.

Amazon “owning” app distribution is not only wrong, it’s irrelevant. It misses the point of Android and is a fundamental misunderstanding of Google and Amazon.

“Build something people want” is not enough

~ avichal ~ 33 Comments

Most people take “Build something people want” to mean “Pick a problem to solve and solve it well.” This is not sufficient to build a world changing company.

“Why now?” is the question entrepreneurs really need to answer. “Why now” encompasses two important and closely related concepts:

  • Why have previous attempts at this idea failed?
  • What enabling factors have emerged that enable you to succeed today?

The world is full of smart people who have the same idea

There are a lot of smart people out there. At least five of them have already tried to solve the problem you’re trying to solve. But you haven’t heard about any of these people.

Why would a similar product in an extremely similar world be vastly more successful? Most entrepreneurs essentially say: “There are other smart people who saw this opportunity. But none of them were smart enough to figure out the right product/marketing/sales strategy to succeed.”

Betting that other people are less capable than you is a bad idea. For you to be massively successful where multiple startups before you have failed, something in the world has to have changed. If the world has not changed in some fundamental way, you too will fail.

How do you do this looking forward?

You can’t answer “Why Now?” until you look back (years later). But you can look for patterns. Some common answers to “Why Now?” are:

  • A new enabling technology has emerged (GPS)
  • Consumer behavior has changed (Consumers understand the idea of “the cloud”)
  • New distribution channels (The iTunes app store)
  • Legislative changes (Environmental regulations drive cleantech)

An Example

I’m going to use my company, Spool, since I think about this every day. Spool lets you save any URL and cache it locally on all of your devices. It’s like a TiVo + personal web crawler for any media.

Why do we think now the right time for Spool? Why have previous startups in this space been unsuccessful?

  • Content consumption has fragmented across multiple devices. We aren’t in a 1 browser, 1 PC world anymore. (Consumer behavior change)
  • Content consumption now happens on wireless networks and infrastructure can’t keep up with demand. (Consumer behavior change)
  • The Internet will be touch based. This introduces a number of user input issues. (Enabling technology)
  • Cloud processing is shockingly cheap. Amazon Silk is a great indicator of this. (Enabling technology)
  • Mobile stores have global reach and the stores keep evolving. (New distribution channel)
  • Social networks are deeply integrated into mobile phones. (New distribution channel)

How many of these will enable to Spool get big? I have no idea. But there are a lot of trends here that expose new opportunities, and Spool sits right in the middle of all of them.

Summary

To succeed, you have to clearly articulate “Why now?” You need to have a thesis about why the world is different today and be able to back that up with some data. As a corollary, if  you cannot clearly articulate why now is the right time for this business, and why 2, 3, 5, or 7 years ago were not the right times — then you are probably going to fail just like the other very intelligent entrepreneurs who previously tried to solve this problem.

Some Historical Examples

Here are a few examples of companies that weren’t novel ideas but succeeded after the world finally changed or caught up to the idea. In addition to enabling technology or consumer behavior changes, they executed on a new distribution channel.

Foursquare

Foursquare was an overnight success 10 years in the making. Dennis Crowley has been predicting the coming of location based services since feature phones. He built Dodgeball in 2003 and sold it to Google in 2005. He vested. Left. Started Foursquare. 7 years after he started Dodgeball, he finally got the idea to work. Why? Because the iPhone came along. GPS became standard in smartphones (thanks to a variety of influences including the US government requiring it in every cell phone). And consumers became comfortable with broadcasting information about themselves publicly on the Internet. He saw the world had finally caught up to his idea thanks to the iPhone and social networks.

LinkedIn

Reid Hoffman has been playing around with social networks since the mid 1990s. He started SocialNet.com in 1997. Reid tried and didn’t succeed. He was way too early. So he tried again at the end of 2002 with LinkedIn. No one gave him money because consumer Internet was dead in the post-bubble Internet era. But the world had changed. There were finally enough companies and mainstream business professionals online to build a real social network. And enough businesses were looking for employees online that they would pay for it and enable a business. There was a critical mass of users online was and it was finally possible for this idea to scale virally. (If you’re interested in a great, short read check out this article from 2005 with a bunch of names you know and some you’ve forgotten about, including Mark Pincus’s Tribe.net, Friendster, and “Thefacebook” — http://www.nytimes.com/2005/05/09/technology/09network.html)

YouTube

Social video sharing sites had been tried many times before. It was going to happen at some point and dozens of sites were funded to pursue the opportunity. But YouTube piggybacked on the back of a perfect storm of trends. Laptops started shipping in 2005 with built-in webcams, so no setup was required by the user and Flash could access these as a standard peripheral. By 2005, playing a video finally didn’t require any downloads. Broadband penetration finally got to a point where video was streamable. And MySpace enabled embedding of videos and YouTube doubled down on easy embedding as their distribution strategy. By the time MySpace realized YouTube was massive and tried to ban YouTube, it was too late. Meanwhile, Google launched Google Video. Google didn’t pursue embeds, focused on making sure copyright violations didn’t happen instead of relying on the DMCA, focused on non user generated videos at first, and required a download to do video uploads. They missed all of the “Why now?” insights that YouTube nailed.

Zynga

Casual games have been a part of the Internet since the very beginning. But no one aggregated enough user attention to make a massive business out of it until Zynga came along. Zynga managed to piggyback on the Facebook API, the launch of the NewsFeed, and the lack of spam controls in the early days of the Facebook Platform. They spammed the hell out of the News Feed, acquired millions of users, funneled them around to a bunch of other games, and when Facebook shut off spam in the NewsFeed the window for anyone to build a meaningful Zynga competitor was closed. Along the way, they bought as many users as they could because they knew that the value was in having all of your friends playing games. Facebook (spam and ads) was the perfect distribution channel for games. Brilliant move.

A few clarifications

  • Stating “If now is not the right time, then people didn’t want it” is a cop out. Almost everyone interprets “Build something people want” to mean “Pick a problem and solve it really well.” If you want to think this way, consider “Why now?” a better way to figure out what people want may want.
  • This applies to startups where you need a small group of smart people executing well. Launching a smartphone requires manufacturing and capital at large scale. Large organizations can mis-execute, build bad products, and screw up  because politics makes people do funny things. If only large companies have tried, you should ask if a startup can even build the right product, and if it can it’s fair to ask if the right product was actually ever built.
  • This applies to startups that want to get to massive scale. This does not apply to businesses that make less than $5 million in revenue.
  • This is not about timing a market. This is about a framework of thought to evaluate the opportunities that are presented to you as an entrepreneur. If you see an opening that clearly answers the “why now,” then you can capitalize on it.
  • This is not about multiple startups competing against each other in a short window of time. This is about comparing a startup today against a similar startup from an earlier point in time. Determining which of Startup A or Startup B will do better today is a different question. However, you can still ask whether or not today is the right time for either of them to try.
  • “Why now” does not say that successful entrepreneurs happen to be in the right place at the right time. Why Now?” reinforces how much execution really matters. Not only do you have to come up with a brilliant insight, build a product that people want, but you have to build your company with a deep understanding about how the world was, is, and will be. Doing all of this is HARD.

Credits

This framework came out of several discussions with friends. I don’t recall who distilled the framework into the brilliantly simple “Why Now?” but it was probably either David King or Ashvin Kumar. Thanks to Curtis Spencer, Christine Tieu, Aditya Koolwal, Chandra Patni, Yin Yin Wu, and Elad Gil for reading drafts of this and providing input.

Why Education Startups Do Not Succeed

~ avichal ~ 190 Comments

 I co-founded PrepMe in 2001. We were one of the first education companies online and the first purely online, personalized platform. We were acquired in 2011 by Providence Equity-backed Ascend Learning. In the last month, I’ve had 3 VC firms bring me in to chat with their partnership about education and 6 independent entrepreneurs reach out to me about their new education startup. This is a summary of what I tell them in person. 

Note: I am going to make some generalizations below. Clearly there are nuances around education policy, economic policy, technology, and more. But this is a blog post, not a book, so take it for what it’s worth. These views are my own, not PrepMe’s (or Spool’s).

Summary

  • Most entrepreneurs in education build the wrong type of business, because entrepreneurs think of education as a quality problem. The average person thinks of it as a cost problem.
  • Building in education does not follow an Internet company’s growth curve. Do it because you want to fix problems in education for the next 20 years.
  • There are opportunities in education in servicing the poor in the US and building a company in Asia — not in selling to the middle class in the US.
  • The underlying culture will change and expose interesting opportunities in the long term, but probably not for another 5 years.

What Entrepreneurs and VCs Think

“Education is ripe for disruption. Technology and great products could make education so much better. If a product like Blackboard or University of Phoenix can succeed, then imagine how great a company you could build if built educational products like Apple does for consumer electronics!”

First, let’s qualify what they’re saying here. Almost always what they are really saying is “consumer, Internet, online education in the Western world is ready for disruption. Everyone is online now and everyone gets an education, so clearly there are massive businesses to be built.” They probably aren’t talking about education in Asia because the companies in that space are started on the ground in Asia. They most likely aren’t selling to schools, districts, the government, or universities. VCs usually don’t like to invest in businesses that sell to the government until those businesses are big (at which point it’s really a private equity deal, not a venture capital deal). Angels will invest in education companies because they’re more motivated by making a difference, not by making a big return in 5 years. For now, let’s focus on US and European online education targeted at consumers.

Why they are wrong

The average person in a developed country does not think about education the way a well educated VC or entrepreneur thinks about education.

VCs and entrepreneurs tend to be well educated. Well educated people think about education as an investment. You put as many of your resources in to an investment as you can. It may take 20 years to pay off, but if the return-on-investment is high (which it is for education) then you invest. This group of people — if you’re reading this, you fall into this group — generally understand that education is an investment, and as a result are price insensitive and will optimize for quality (a higher return on investment). For this group of people, quality is the primary driver of a purchasing decision, not cost.

The average, middle class person thinks about education as an expenditure, not an investment. It’s something they have to do because it’s mandated and the lack of the highest quality education hasn’t negatively impacted their lives in a meaningful way. Step back for a second before you judge. Imagine it’s 2005, and you live in a small town in the middle of Ohio (where I grew up) and you don’t get a college degree. If you get a factory job and make $25k/year and your wife gets a factory job and makes $25k/year, you’re making $50k/year. But houses only cost $90,000 and food is affordable and you can get a loan for a car for $300/month. So you’re not doing terribly and the default state for your children is the same life. You can afford a house, food, have a car, and have weekends off.

So, what has the lack of an education done to the typical American’s life? It’s removed job security, screwed your retirement, and maybe set you up to go bankrupt if you get sick. There are no immediate consequences, there are no immediate consequences for your children, but there is an immediate cost. So the average person thinks of education as an expenditure. If you get sick when you’re 70, you’re screwed. Or if you don’t save in your 401k, you may have to work till you’re dead. Or maybe your children won’t be as competitive in a global workforce 30 years. Don’t believe me? Only 15% of kids taking the SAT pay for an out of school test prep course like Kaplan. Over 50% of Americans don’t have beyond a high school degree.

This fundamental investment vs. expenditure mindset changes everything. You think of education as fundamentally a quality problem. The average person thinks of education as fundamentally a cost problem.

What does this mean for education companies?

Educational companies that focus on delivering higher quality solutions to consumers will not scale to the mainstream. Educational companies built around driving down costs to the end consumer will scale. Or a corollary, an enterprise sales or government sales company that taps into government revenue streams will scale but will not have a consumer Internet growth curve.

Let’s look at some data from the marketplace:

  • Chegg – A company that is in education and sells to consumers. A $1 billion valuation and growing quickly. But, Chegg sells you the same textbook experience for much cheaper. It’s a great consumer focused business with offering real savings to students. Note that even in 2011, the “Netflix of education” is booming because of the equivalent of its DVD (physical textbook) business. Digital, personalized learning online or tablet based, interactive, social textbooks aren’t anywhere to be found.
  • University of Phoenix – $6 billion market cap. They make it easier to get a degree because it’s convenient and subsidized by government backed loans. Consumers make the decision but ultimately the government is footing the bill. They aren’t a consumer company and they are a marketing machine. They are a company that makes it easy to get the same quality diploma that you would get at the local college. They don’t compete with Harvard, they compete with the local university that costs more and only has on campus night courses. They weren’t an overnight success either; UofP was started in 1976 and they IPO-ed in 1994.
  • Kaplan – they didn’t get huge because of their test prep business, which is a consumer business and (arguably) delivers educational value. They became huge because they started following the University of Phoenix model for Kaplan University. Again, the primary value they offer is not quality of education, but convenience.
  • K12 – they are not a consumer, online education company. They sell to school districts and their model revolves around being able to drive down costs for school districts in their high cost students — special needs, gifted, rural, etc. They have built an interesting consumer business overseas — in the Middle East and Asia.
Here are a few examples of companies that tried to do consumer Internet style education plays and how it worked for them:
  • TutorVista – started by offering online tutoring to Western students using tutors in India. All you can eat for $99/month or so. They burned millions on search engine marketing and were able to build a business that generated eight figure revenue — nice but not enough to IPO on. So they pivoted and opened education centers in India and were acquired for $213 million by Pearson. A $200+ million acquisition in India is unheard of.
  • Tutor.com – started a decade ago to offer online tutoring to the masses. Never went mainstream, even after 5 rounds of funding. They’ve built a niche business that survives through deals they’ve struck with various government bodies — libraries, schools, etc.
  • GlobalScholar – started by the CEO of Drugstore.com, tried initially to do a direct to consumer play. Realized it wasn’t working and bought an electronic gradebook company that works with schools and was sold to Scantron that has great distribution with schools.
There are dozens of examples of companies that have tried to build around quality and hit a revenue ceiling in the few millions. Think about the 10 local tutoring centers in your city that probably make $1 million each. This early traction is very misleading because you see engaged, happy, paying customers. So you assume that it will scale but it turns out that this business won’t scale because your early adopters behave fundamentally differently than the mass market.

An Aside: Being Asian or poor changes your perspective

Yes, this section is a little hand wavy and full of generalizations. These are observational insights with some data points that show the generalizations are directionally accurate at the end. This is not a rigorous sociological study, so take the generalizations for what they’re worth.

If you’re living in most of Asia (South Asia included) and you don’t get an education, you’re screwed. Part of this is cultural (you have no social capital if you’re not well educated) and a lot of it is economic (if you don’t have an education, you will do menial labor and not have enough money to feed your children). Consider the difference between some random person in China vs. some random person in Kansas. If the Chinese person doesn’t get an education there’s a good chance they will not get a job. They will die poor, unable to adequately feed their children, and unable to take care of their parents (since the model is that the young take care of the older members of the family). But if they do get an education, they have a shot at a good life — call centers, banks, government jobs, the army, etc. And if it’s too late for that individual, they know that they can give a good life to their children. The non-college educated person in Kansas probably won’t have a great life and a secure retirement without an education. But they, their children, and their parents probably won’t die hungry and homeless on the streets of Topeka. This cultural mentality is carried over to many Asian Americans via immigration. This is not universally true, of course, of Asian Americans but there is no denying there is a strong correlation. So if you want to start a consumer education company in Asia, you can make it work and make it scale — MegaStudy and Kumon are two great examples. However, there are not enough Asian Americans to support the same scale of business in the US.

Being poor also changes how you think about education. Interestingly, in the US, the people who are most willing to try new things are the poor and uneducated because they have a similar incentive structure to a person in rural India. Their default state is “screwed.” If a poor person doesn’t do something dramatic, they are going to stay screwed. Many parents and teachers in these communities understand this. So the communities are often willing to try new, experimental things — online education, charter schools, longer school days, no summer vacation, co-op programs — even if they may not work. Why? Because their students’ default state is “screwed” and they need something dramatically better. Doing something significantly higher quality is the only way to overcome the inertia of already being screwed. The affordable, but poor quality approaches just aren’t good enough. These communities are on the hunt for dramatically better approaches and willing to try new things. Unfortunately the poor don’t have a lot of money to spend so servicing this community requires selling to the schools, which is an enterprise sales type of business — not a consumer business.

Consider Kumon, which is worth almost $1 Billion. They started in Asia, they are essentially a franchise model that caters to well educated parents, and a key part of the value proposition is in giving students a place to go and be supervised (babysitting!). It’s a great business that serves 4.2 million students worldwide. Of this, about 200,000 are in the US. The overwhelming majority are in Asia.

It’s not a perfect dataset but the Quantcast data for Khan Academy’s US demographics support this. The people going to the site are:

  • the already well educated who value education and want supplemental resources
  • Poorer (which unfortunately correlates with being African American and Hispanic)
  • Asian

Khan Academy Demographics

Education is a huge market and there are opportunities

Clearly education is billions (trillions!) of dollars. There are lots of opportunities, especially if you take a long term view of it and want to build something meaningful for the next 25 years. However, don’t make the following mistakes:

  • Don’t believe that building a better product will make you successful. Delivering something for cheaper will. Even if that cheaper thing is lower quality. This is usually repugnant to most well-educated entrepreneurs.
  • Don’t start in developed, western countries because that’s where large, Internet businesses have been built. Asia is a much better education market if you want to target consumers.
  • Don’t take VC funding because the growth curve in your education business will not live up to VC expectations early on. Take angel money from people who want to make a difference in education. Then take private equity money once you’ve figured out how to get to $10 million in revenue on your own. Even better, don’t take any PE money and grow it on cash flows. Successful education businesses are often not capital constrained.
  • Don’t target suburban or urban, middle class users with disposable income. You’ll build a niche business that can’t go mainstream. Target poor students in the US and get to charter schools who are desperate to try new things. Target families in China and India where a family will put down half of their monthly income on education. Or target people who really value education and will pay 10x more for something that is higher quality. That’s where there are big businesses to be built and a willingness for new solutions.
  • Don’t expect a quick flip or quick growth. Building a large, successful education company will take 20 years. The growth curve will not be like an Internet technology company until you hit $10+ million in revenue. Then things will ramp  quickly because you will have identified your core market and built the beginnings of a brand; the education industry is small and people will know if you deliver real value.

Some Additional Reading

I threw some numbers in here. A lot of it just stuff I’ve read over the years but I tried to track down some stats on things that I thought would be harder to believe for the people who will find this article.

Thanks to Curtis Spencer, Karan Goel, Jon Bishke, Elad Gil, Dan Siroker, Christine Tieu, Aditya Koolwal, and Yin Yin Wu for reading drafts of this and providing input.

Electronically Track Balls and Players

~ avichal ~ 1 Comment

This idea is so obvious it would not even be worth mentioning, were it not for the fact that I can’t find a discussion about it on the Internet. The only thing I can find is an article from 2002: http://www.nature.com/news/2002/021104/full/news021104-6.html

Why is the entire playing field for a sport, all of the players, and the ball somehow tracked electronically? Why in the world are football referees eyeballing whether or not a player crossed the goal-line for a touchdown or where to spot the ball after a player is tackled? Arbitrarily putting the ball down and then calling out the guys with the chains has got to be one of the dumbest rituals in all of sports.

RFID would seem to be a more reasonable easy way to make baseball, football, soccer, and even basketball (goal tending would be easy to track) would benefit from this.

I can’t even imagine the argument about slowing down the game would apply because you could built an interface to it that the refs can use immediately. If the ball in basketball is on the downturn when it’s tapped in the air, a little signal could vibrate in the ref’s pocket. If it doesn’t, then it doesn’t. When the ref wants to spot the ball to see if a team made a first down in football, a simple device could tell them approximately where to spot the ball and more importantly immediately tell the ref whether or not this was a first down.

Simple and no change to game play, and actually makes the game move faster in some cases.

Marvel MMORPG

~ avichal ~ 1 Comment

Marvel should license their brand and all of their superheroes to a video-game company or hire a good video game company to create a massively mult-play online role playing game. World of Warcraft is huge these days and to get into that world you have to learn all of this backstory and character types and blah blah blah. With the Marvel Universe, thanks especially to their movie success in the last 10 years, everyone knows the main characters. The X-men characters, Spiderman characters, Hulk characters, the Avengers, the Fantastic Four…you could be one of those people, customize your character, get level upgrades and special body-armor and things like that for going on quests.

Given their brand names I bet they could get a million people on that thing pretty quickly. I know I would consider that and I really wouldn’t consider World of Warcraft.

Inverse Social Network

~ avichal ~ 3 Comments

In thinking about what I really want out of a social network (that is not currently available), I really want the inverse of what a typical social network currently is.

The State of Today’s Social Networks

Roughly speaking, today’s social networks are all about allowing an individual to share information with the rest of the world (pictures, contact information, blog-like thoughts, etc. ) and communicate with “friends” (or receive communications from friends). Clearly, there are different flavors of these networks — LinkedIn serves a different purpose than Facebook — and so the features they highlight and the usage patterns of these features are going to be different.

What’s the problem and what is missing?

The problem here is that people will automatically filter what they’re willing to share to the lowest common denominator. If you are “friends” with your boss, your mom, and your best friend and you don’t want to share everything with all of them, chances are you’ll pull back and limit what you share. Clearly this is an issue unto itself but I won’t touch that because I think you can get around this with groups and group level privacy settings.

This lowest common denominator effect does highlight something else though, and that is that there is clearly a lot of information missing from someone’s profile. More precisely, all of the information I know about someone else is missing from their profile and in many cases this is the really critical information about someone.

For example, if I know my boss’s kid’s name but he doesn’t want to reveal that for the whole world to see on his LinkedIn profile, I actually have a unique piece of information that is quite valuable. Or, if I have a casual acquaintance who has let me know his hometown but who has not publicly offered this information, again I have some unique knowledge about that person that I may want to remember.

Inverse Social Network

Rather than seeing a page of what someone is willing to share there is a lot of information that I know about people that I would like to merge with the information they’re willing to share. This way what you end up with when you’re looking at a profile page of person A is a complete snapshot of everything you know about that person. With a simple search and tagging feature I think this could be really powerful because I would be able to remember everything I ever knew about someone. If I’m going to have a meeting with a client, I can pull up their page and see everything I know about them. If I’m going to see a friend from out of town that I haven’t seen in 6 months and I have no idea what his brother’s name is, I can look it up.

And I may even want to share what I know with other people who may find it useful. So if I have a group of friends whom I trust, I may want to share information about my boss or one of our mutual friends so that we all have access to the same information. I think this sort of sharing would make people afraid but there isn’t much you can do to stop it in the first place. If I tell my friend what my boss’s kid’s name is and he happens to remember it, that pretty much accomplishes the same thing today.

I could imagine this being integrated with an email client as well so that I can easily reference information about people I’m emailing, and perhaps being a browser plug-in so that the information is available while I’m viewing their facebook profile, myspace profile, or linked-in profile…maybe with some greasemonkey or just a simple window overlay that slides in and out easily with a key combination on the keyboard.

I think this would be a huge win for anyone who has a lot of meetings — namely anyone in the business world.

Who Should Build This?

I think he best candidate is probably LinkedIn. They have the right demographic of users and it would fit in nicely with their existing social network. It would also allow them to move into having more of a browser and desktop presence, and if it gets popular enough on the desktop/browser they would end up with the really interesting side effect of knowing which profiles on different social networks are actually the same people so you’d end up with an uber-graph of people connected to each other.

The other type of company that might benefit from this is a startup, exactly because if they end up with good penetration, they would be able to overlay friendships across different social networks on top of each other and create linkages between different social networks. I don’t know how you would monetize that off the top of my head but it seems like useful data.

So someone please go build it. Thanks.

A high quality news program on the Internet

~ avichal ~ Leave a comment

Someone should put together a good comprehensive summary of the news and post it on YouTube. The problem with network news is that they have to fill it with feel good stuff, celebrity junk, and have commercials that take up 30% of the on-air time.

You could even exploit the long tail and do some fancy personalization if you recorded say 100 short segments that covered the major headlines of the day. You could then have standard transitions that you use between segments that are also pre-recorded. Based on a profile people create you could you could automatically slice together different segments that might be of interest to that user.

You could also have a few “stock” compilations for things like world news, US news, politics, entertainment news, etc. People could just come to these and hit play without having to sign in or save/create a profile.

Why is this better than reading the news? For the same reason that going to a lecture is better than a book. If you can see it AND hear it, it’s far easier to stay engaged and just reading on your own is a lot more effort. There are a lot of people out there who would rather listen and watch the news than read it and have to hunt around for the most relevant stories.

So start simple, do a news recap without all the crap on most news shows, put it on YouTube and get a userbase. Then launch your own site with high quality production and personalization. Done and done.